Patent Debate Spawns Stanford Study

This is the second in an on-going series of stories exploring the debate about the US patent system.

PALO ALTO, Calif. — The debate over patents has spawned a gathering of some of the nation's top intellectual property thinkers at Stanford's Hoover Institution. Their recent symposium here is expected to generate a series of events and studies over the next five years on whether the US patent system helps or hinders innovation.

"There are many strong positions but a weakness of empirical evidence," said Stephan Haber, a Hoover Institution fellow who kicked off the event. "The goal is to bring evidence and reason to bear, regardless of which way it points us. We are in the business of advocating for the truth."

On one side, big product companies often argue they are being hit by a rising tide of often spurious infringement suits from so-called "trolls" who do nothing but buy and assert patents. On the other side, startups and individual inventors claim such trolls -- also known as non-practicing entities -- serve important roles such as helping them make money on their work. Parties on both sides sometimes argue the patent system is flooded with applications and is not able to keep up with the pace of technology.

"We really don't have enough evidence to support the idea there's a fundamental problem with the US patent system," said B. Zorina Khan, a leading historian of the patent system who presented the first paper at the Hoover event.

Khan criticized President Barack Obama's call for patent reform in his last State of the Union speech. "We do not have enough information about the costs, benefits, and alternatives to the patent system to advocate for or against reform," said Khan, a professor of economics at Bowdoin College.

She and others noted that about 90 percent of patent suits are settled out of court, and there is little data on terms of those settlements.

Khan cited many examples of complaints of the rising number of patents, suits, and trolls during the Industrial Revolution. "We need to get away from a fear of markets, intermediaries, and secondary markets -- we should celebrate them [because] they play a role in economic growth...

"I agree there's been an increase in [patent suits] in the past 10 years, but compared to earlier rises it doesn't seem that explosive to me," said Khan. "The weight of litigation we see today is high, but I dispute the idea these patent cases are egregious."

She showed reports dating back to the beginning of the US patent system in the 1850s. They complained of "patent sharks" and speculators, high litigation costs, and a slow, swamped patent office issuing too many silly patents. One article warned people not to buy Model T automobiles for fear of being drawn into patent suits.

"Why are we surprised [large, high-profile patent suits] occur in wireless technology today?" she asked. "Forget about attaining perfection -- no institution is exempt from costs and inefficiencies -- but the patent system has worked well for more than 200 years."

The conflicting views noted about the effect of standardization on innovation are related to a lack of understanding, more than a lack of data. When patents read on different concepts they have different economic effects. As example, drug companies find patents (which prevent other drug companies from making similar drugs) very important to their willingness to innovate. Conversely, many software companies find patents (which increase the cost of providing compatible interfaces) to be an impediment to innovation.

These examples describe the different effects of patents which control similarity (the result of repetitive processes and the basis of the industrial revolution) with the effects of patents which control compatibility (a relationship, often reached by agreement, between dissimilar processes, the basis of the information age). Until the patent system recognizes this distinction these conflicts will continue.

There are technical solutions which support compatibility, without reducing the incentive to innovate, as well as legal and economic approaches. See The Entrepreneur and Standards http://www.isology.com/pdf/IECChallenge2006.pdf for a more detailed view of the technical problem and solution.

Qualcomm would have done fine without patents if it continued to innovate. In fact when Qualcomm signed their first cellular network deal with PacTel Cellular in 1989 they didn't have a single patent covering CDMA in a cellular implementation. Qualcomm succeeded because they possesed many trade-secrets that were essential for a successful CDMA implementation. Qualcomm was also lucky in that the prior-art considered by the patent office was sufficiently different that their broad claims withstood reexamination. However it's now recognized by many that the first practical CDMA phone was invented in 1957 by the Russian engineer Leonid Kupriyanovich. Imagine if someone with an enforcable prior-art patent succesfully sued Qualcomm years after they become dominant in the industry and put them out of business. If the US patent courts weren't so biased in favor for large US companies this would happen much more often.

The fact is that a company that has the leading technology in a certain field and even a moderate amount of financial success if better off without patents. Take Microsoft and Apple who would have been been crushed by patent litigation if software patents where prevalent at that time. Patents only benefit patent attorneys and patent trolls. Both are a huge drag on innovation.

Yes, there is a potential market with trolls and front man for infringers, but I wouldn't call it "robust". Uninfringed patents are worse than worthless. Having infringed patents but unable to enforce puts the inventor in a bad bargaining position. Trolls are in the game for themselves to make a huge profit. It makes talking to Corleone a much more pleasant experience.

Rick: Try Irwin Jacobs. Without patent rights and a willingness to vigorously enforce it, there will be no Qualcomm. The best he can do would be to earn some consulting fee from "innovative" companies like Motorola.

It will be difficult to have a market for patents. Patent infringers have to prove in court that they do not infringe knowingly. If they try to buy that very patent, they must know the patent. So the standard approach is 1) to steal, 2) drive up litigation cost, 3) buy off university professors to spin (expertly) for the infringer, 4) buy off congressmen to junk the Constitution.

@Rick: Thanks for information. With invent of stong on-line community and things like bitcoin, is it possible for some organization take lead? They should not be concerend for political or legal system. One needs establist moemntum, one it is more prominent, government and other parties will join them.

It may look far fethched idea. But it is possible to associate new patents with stock exchange trading and they derive thier current value as per its applicability? As they become more relevant, other organization can trade them, quoting higher price.

Purpose of this is to filter out good patents and and not so good trolls.

Fortunately for the rest of us, the US constitution still holds, despite multiple assault from the "formerly poor". The US constitution is what made ours a country of financially motivated innovators. I sincerely hope that people, especially engineers, are smart enough to see through the effort of those "formerly poor" to legally rob people and debase the value of engineering. If they succeed, they will kill the incentive for innovation and turn USA into a Kenya without zebras.